India needs to grow by 9 percent every year for five years and raise aggregate investment rate to 38 per cent of gross domestic product (GDP) to turn a $5-tr economy, EY recently said. That is needed to take the economy size to $3.3 tr in 2020-21, $3.6 tr in 2021-22, $4.1 tr in 2022-23, $4.5 tr in 2023-24 and $5 tr in 2024-25.
The size of Indian economy will grow to $3 tr from $2.7 tr in the previous year, assuming India grows by the projected 7 percent in the current fiscal ending March 31, 2020, EY said in its latest edition of Economy Watch. In fiscal 2018-19, the gross investment rate, estimated at 31.3 percent, was able to deliver a real growth rate of 6.8 percent. The implicit incremental capital-output ratio (ICOR) was 4.6, it said. “This is relatively high because of deficient capacity utilisation.”
India’s average ICOR during the three-year period from FY17 to FY19 has averaged 4.23. The highest achieved investment rate in India was 39.6 per cent in 2011-12. EY said achieving such levels would be consistent with the requirements of India’s demographic dividend. Total investment is the sum of public investment, household investment and investment by the private corporate sector. The government may provide a policy framework to induce the State Governments and the private sector to uplift their investment rates, EY said.
“Furthermore, if the Central Government can successfully reduce its revenue deficit, there would be room for higher capital expenditure with the same fiscal deficit. It can also induce additional investment through the CPSEs while keeping in mind, the overall constraint of resources in the form of savings in the system,” it added.
